Paper for NW TAR and Foemerseygatewaybridge

Paper for NW TAR and FoEMerseyGatewayBridge

2010 Comprehensive Spending Review

Rebutting the economic case

for the Mersey Gateway

made by Halton Borough Council

for the Comprehensive Spending Review

A paper on behalf of

The Alliance

comprising

the North West Transport Roundtable

and

Professor Alan Wenban –Smith October 2010

Comprehensive Spending Review, 2010: MerseyGatewayBridge

1Introduction

The promoter’s proposition

1.1Halton Borough Council’s (HBC’s) submission to the Comprehensive Spending Review (CSR)[1] opens with the statement that “The Mersey Gateway is an integrated transport project that will provide the vital infrastructure that is required to deliver sustainable economic growth in Halton and the north-west of England”, and goes on to respond to the CSR questions as though this is established fact.

This submission

1.2At the Public Local Inquiry in June 2009 this proposition was contested by the North West Transport Activists Roundtable (NW TAR), an umbrella organisation for promoting sustainable transport and land use in the region, and by Friends of the Earth (FOE) who together formed ‘The Alliance’. The report of the Inquiry has not yet been published, but in the course of the Inquiry there was evidence and discussion relevant to the questions being asked by the CSR. This paper summarises the key points of evidence, and presents an alternative set of answers to the CSR questions in this light.

1.3This evidence shows that the MGB proposal is deeply flawed, whether as a contribution to regional regeneration or in terms of wider national policy. In our view it should not be funded even if public resources were plentiful, and certainly not in the circumstances the nation now faces. We suggest an alternative approach more consistent with regional and national needs.

2The promoter’s case

The proposal

2.1HBC was created from the formerly separate local authorities of Runcorn and Widnes, either side of the Mersey, and became a Unitary Authority in 1998. The Silver Jubilee Bridge (SJB), opened in 1973, is a 4-lane bridge linking the two. However the carriageways are narrower than current standards and there is congestion at peak times: a second Mersey crossing in the Borough has been a part of HBC’s thinking and lobbying almost since its inception.

2.2The MGB would be a modern 6-lane bridge, placed between the SJB (1 mile downstream) and bridges at Warrington and on the M6 (about 6 miles and 10 miles upstream respectively). MGB has been promoted as a means of reducing congestion on the regional network, but has consistently failed to secure public funding of its cost (~£700m) from successive Governments.

2.3The current proposal has three significant innovations:

a)It is re-branded as a regeneration project (‘Mersey Gateway’), of which MGB is by far the largest component;

b)The MGB project is offered to the private sector on the basis of a 30-year concession to charge tolls (linked to Mersey Tunnel rates) in return for bearing the construction costs; and

c)The SJB is to be narrowed to 2 lanes and tolled at a similar level.

Appraisal

2.4Using conventional transport modelling and appraisal methods, the net present value (NPV) of benefits of MGB was estimated to be some £290m, against NPV of public sector cost of £73m, giving a very favourable Benefit to Cost Ratio of just under 3.97:1. Alongside these transport benefits, the Wider Economic Impacts report estimated that residents of the Regeneration Area (covering much of Merseyside) would gain 1233 net additional jobs as a result of the changes.

3The case against MGB

3.1Evidence given in the course of the Inquiry showed cause for important reservations about the scale of benefits being suggested. The key points are outlined below, under the headings of Appraisal Process, Economic and Regeneration Impacts, and Climate Change. As well as casting doubt on the individual numbers, these suggest that the traffic and regeneration cases conflict, falsifying the rebranding of the MGB road scheme as the ‘Mersey Gateway’ regeneration scheme.

Appraisal process

3.2The appraisal process undertaken by HBC does not meet HMT Green Book[2] standards, in that they have failed to assess the proposal against other ways of meeting the same objectives. The ‘Do minimum’ used as a baseline for appraisal was, in effect to ‘do nothing’, rather than (as required) “ .. the minimum necessary to achieve Government objectives”.

3.3The ‘Do Minimum’ baseline used by HBC is inappropriate because it fails to take account of national policy to reduce carbon emissions in the transport sector. The consequence is that the MGB scheme is credited with aCO2 emissions benefit of £9m (because it is slightly better than doing nothing), even though large increases in emissions are forecast for both baseline and MGB cases (see para 3.10 below). Properly costed, these dwarf the estimated economic benefit.

3.4Both baseline and proposal are thus completely unacceptable in terms of Government objectives (or even HBC’s LTP objectives). This is a clear signal that a much wider range of alternative approaches ought to have been considered, including tolling the existing bridge (with suitable concessions). The failure to do so infects all the supposed benefits of the MGB scheme.

Economic impacts

3.5The net public cost (£73m) is the difference between up-front public sector costs (~£300m) and toll revenues received by Halton BC after the end of the concession in 2042 (£228m). Both figures – particularly the latter – are subject to major uncertainties (including the effect of toll concessions introduced after the submitted appraisal – until then based on Mersey Tunnel rates).

3.6By far the largest component of the overall estimated economic benefit is time-savings by business users (NPV £222m). This figure is highly suspect, for the following reasons:

a)The ‘do nothing’ baseline (see 3.2 above) exaggerates benefits;

b)The time-savings attributed to the MGB take no account of changes in household and business location resulting from its presence, which would reduce their scale;

c)Even so, HBC’s own model shows that over the first 14 years of operation businesses would pay out more in tolls than they would gain in time-savings and vehicle operating costs;

d)In fact 98% of the estimated user benefits relates to the period after the end of the transport model, and is thus entirely dependent on the assumptions made rather than analysis[3];

e)The net benefit to users is not a robust figure, being the difference between two large estimated numbers (toll income and time-savings) each with a substantial margin of error;

f)There is increasing agreement amongst experts that appraisal periods are too long and discount rates too low – both of which tend to inflate the economic value of time-savings.

3.7The value of ‘Wider Economic Benefits’ (agglomeration and increased competition) were derived from direct transport benefits and are therefore subject to the same criticisms.

Regeneration impacts

3.8‘Regeneration’ is not additional to the economic impacts discussed above, but an attempt to identify the policy relevance of the areas and social groups receiving these benefits. The rebranding of MGB as Mersey Gateway regeneration makes this of critical importance, but the estimates made were of dubious value:

a)The Regeneration Area (RA) is very widely drawn, to include virtually the whole of Merseyside, though DfT guidance at the time the inquiry took place required RAs to be limited to areas defined in the Regional Economic Strategy;

b)Multipliers applied to new jobs to estimate supply chain effects are unjustifiably high;

c)Unjustifiably high success rates are assumed for local residents in winning new jobs created;

d)An unrealistically low rate of loss of jobs displaced by redevelopment was assumed (5%);

e)The MGB was arbitrarily assigned 25% of all jobs created by all regeneration activities in the Mersey Gateway area.

3.9It is striking that in spite of the exaggeration of regeneration benefit arising, the total benefit falls far short of the economic benefits projected from time-savings. 1233 jobs would have an NPV of £25-30m, while the economic value ascribed to business time-savings is £222m. Given that the Regeneration Area covers most of the area in which the time-savings would be experienced, this discrepancy is too large to be easily explained. This adds to the reasons given in paras 3.5-3.7 above for believing the economic impact to be suspect.

Climate change

3.10As pointed out earlier (para 3.3), a particularly serious defect is the failure to consider the need to meet CO2 emissions targets (since made statutory). Because of the tolls, the proposal with MGB saves some 300,000 tonnes of CO2 over the appraisal period (2015-2074), compared with doing nothing. However, this is in the context of a 12.5 million tonne increase in CO2 output compared with the present4, when the national target is to reduce CO2 emissions by 80% by 2050. The difference between target and outcome is some 75 million tonnes (worth £2.25bn at the same rate as used by HBC).

Summary of impacts

3.11Table 1 summarises the differences between claimed and likely impacts of the MGB scheme.

Table 1: MGB impacts – promoter’s claims vs likely outcomes

Nature of impact

Claimed by HBC

Comments

Public sector costs

£73m net (£300m costs - £228m post 2042 income)

Not robust: Public costs are up-front; toll income only after concession ends (2042)

Business user time and operating costs savings

£222m net (£847m benefits - £626m tolls)

Not robust, and exaggerated

Net effect only positive post 2029

Bulk of benefit depends on assumptions after end of model

Effect of more dispersed pattern of activity not considered

Wider economic benefits – agglomeration and competition

£67m agglomeration

£22m competition

Not robust, and exaggerated

Depends on same models and subject to the same reservations

New jobs for Regeneration Area residents

1233 additional jobs won by RA residents

Not robust, and exaggerated

RA very widely drawn

Multipliers and success rates high

Assumes only 50 jobs lost out of 1000 displaced by redevelopment

Climate change – increase in CO2 output over 60 years (2015-2074)

Do min: +12.8m tonnes

MGB: +12.5m tonnes

Reduction: 0.3m tonnes, value £9m

Not compliant with HMT rules

Neither baseline nor MGB outcomes meet statutory reductions in CO2 output. Distance from target = 75m tonnes; value @ £30/tonne = minus £2.25 billion

4What is the alternative?

Transport and regeneration

4.1The Eddington Report gave top priority to transport schemes that would support urban economic growth, but with the crucial proviso that where new roads are built, road pricing would be essential to lock in benefits. Without this, there would be serious adverse consequences:

a)Households and businesses take advantage of improved roads to adopt more dispersed patterns of location[4];

b)Dispersion reduces the potential agglomeration advantages of the urban economy, and undermines regeneration by increasing social polarisation;

c)More dispersed patterns of location also increase car-dependency, CO2 emissions and fossil fuel dependency (as the figures in Table 1 demonstrate);

d)The resulting traffic growth will re-establish congestion at new and higher levels.

4.2Transport supply is thus a major and dynamic driver of transport demand, while transport problems arise as much outside the transport system as from within it, and the effects of transport measures are felt far beyond the transport system itself. Transport planning in Merseyside has in the past often failed to give sufficient thought to this context or to wider consequences of the kind listed above.

The need for a more integrated approach

4.3Planning concepts and processes should foster a more integrated relationship of transport with other aspects of economic and spatial policy-making, to realise the potential for mutual reinforcement (‘win/win’) between agglomeration, quality of life, reduced transport demands, and reduced vulnerability to fossil fuel supply and price. In this case:

a)Transport demand management needs to go well beyond tolls on bridges, to look at the whole network, as Eddington recommended. This requires national action;

b)Money from road pricing (tolls or other forms) needs to be recycled into regeneration that reduces the need and demand for travel, and into public transport that provides less environmentally damaging and more socially inclusive supply. The option of using SJB tolls in this way without a new bridge ought to have been considered;

c)Local Economic Partnership(s) should develop collaborative local approaches to economic and spatial policy, with a unified budget assembled from the surfeit of present central and local sources. The greater efficiency and effectiveness of such an approach should allow better outcomes even with reduced overall resources.

5Our responses to CSR questions

5.1In the light of the critique of HBC’s case for the MGB, and our comments on an alternative approach, we set out in Table 2 below our responses to the CSR questions.

Table 2: NW TAR responses to CSR on the MGB proposal

CSR Questions

MGB performance

1.Is the activity essential to meet Government priorities?

There are other more effective means of tackling Merseyside’s regeneration and traffic congestion

The MGB forms part of an approach to transport and land use policy which will seriously compromise policy on carbon emissions

2.Does the Government need to fund this activity?

NO – but Government needs to fund alternative, more effective actions

3.Does the activity provide substantial economic value?

NO – economic value offered is poor relative to direct costs, and overwhelmed by negative externalities

4.Can the activity be targeted at those most in need?

Limited extent: Toll concessions could be better targeted, but main beneficiaries would still be motorists, not public transport users

5.How can the activity be provided at lower cost?

Foster a more concentrated pattern of economic activity in the Mersey Gateway, to deliver agglomeration and clustering benefits by focus on:

urban regeneration;

transport demand management; and

a more selective approach to transport investment

6.How can the activity be provided more effectively?

7.Can the activity be provided by a non-state provider or by citizens, wholly or in partnership?

Localisation of central budgets and recycling of toll income from SJB would encourage a more joined up approach to economic and social regeneration, transport and environment.

8.Can non-state providers be paid to carry out the activity according to the results they achieve?

Non-state providers could play a greater part in a more fine-grained and localised approach to transport and regeneration, less dependent on prestige schemes

9.Can local bodies as opposed to central government provide the activity?

Local authorities could play a greater part in regenerating Mersey Gateway area, but central Government cannot abrogate its responsibility for the wider framework

Alan Wenban-Smith, Urban & Regional PolicyPage 1

Final 7 October 2010

Footnotes

[1] HMT (2010), ‘Comprehensive Spending Review’

[2] HMT (2003), ‘Appraisal and Evaluation in Central Government’

[3] Inquiry document ALL/3/2P

[4] 70% of increase in motorised personal surface travel is due to longer trips (A Wenban-Smith, Committee on Climate Change workshop, 2009)

Author: Professor Alan Wenban-Smith, Urban & Regional Policy, 48 St. Agnes Rd., Birmingham

Published by the North West Transport Roundtable (NW TAR) and Friends of the Earth (FOE) in response to Halton Borough Council’s document ‘Mersey Gateway: Submission to the Spending Review’, October 2010.

North West Transport Roundtable, c/o Greater Manchester Transport Resource Unit, St. Thomas Centre,

Ardwick Green North, Manchester, M12 6FZ.